On transformation, VAT obligation arises on receipt of part or all of the fee

The ministerial general interpretation concerns the taxation with goods and services tax of the actions of transformation of the right of perpetual usufruct of land property into the right of ownership, carried out by virtue of law pursuant to the Act of 20 July 2018 on transformation of the right of perpetual usufruct of land developed for residential purposes into the right of ownership of such land (in short: the Transformation Act). Doubts related to the VAT treatment of the activity of converting the perpetual usufruct right to land into ownership on the basis of the Transformation Act were the subject of proceedings before the Court of Justice of the European Union (CJEU).

– As explained by the Ministry of Finance in its document, for the act of transformation of the perpetual usufruct of land into ownership, effected pursuant to the Act on transformation (i.e. by virtue of law), the tax obligation should arise at the moment of receipt of all or part of the transformation fee (with respect to the amount received) – Andrzej Kapczuk, tax adviser, partner at Thedy & Partners, is quoted as saying.

It should also be added that from 1 January 2022, Article 19a Section 5 point 1 letter b of the VAT Act has been appropriately clarified to eliminate doubts arising in this respect. Pursuant to the new wording of art. 19a sec. 5. 1 letter b of the VAT Act, for transactions involving transfer by order of a public authority or an entity acting on behalf of such authority, or transfer by operation of law of ownership of goods in exchange for compensation, the tax obligation arises at the time of receipt of the whole or part of the payment for this purpose.